"If you want to try the Soviet model, fine," said [Niall] Ferguson, meeting
gasps and hisses from the Krugman-cheering set. "Where were you in the
1970s' when all these great regulations were in place? I don't remember this
going too well." To [Paul] Krugman, however, this pill could end up making
us sick. Instead, we need New Deal-era boldness and aggressive government
action. Krugman is the easy one to cheer for. After all, it certainly feels
like the 1930s. Public animosity toward the private financial sector is at
an all-time high, and we have a president who's easy to trust.
http://www.reuters.com/article/bigMoney/idUS405905711720090501http://www.andrewpurcell.net/?p=375http://blogs.wnyc.org/culture/2009/05/07/talk-to-me-the-economic-crisis-and-how-to-deal-with-it/"World's Top Economists Agree: The Global Recession Will Continue",Huffington Post 5 May 2009"The only thing that would drive up interest rates is if people don'tbelieve the U.S. can pay down its debt," said Krugman, who did not seem tobelieve that investors would stop trusting the U.S. Federal Reserve. Afterthe panel, an elderly fan suggested that Krugman should have given Fergusonan uppercut to the chin. "The danger is that [Ferguson] thinks he knows whathe's talking about," Krugman told the man.http://www.huffingtonpost.com/2009/05/01/worlds-top-economists-agr_n_194313.htmlBenjamin M. Friedman "The Failure of the Economy & the Economists" NYRBVolume 56, Number 9 Â· May 28, 2009:As in past financial declines, what is sorely missing in this discussion isattention to what function the financial system is supposed to perform inthe economy and how well it has been doing it. (...) But the effectivenessof the economy
's mechanism for allocating capital should be a matter forserious quantitative evaluation, not a matter of faith. Moreover, to askjust how efficient a financial system is in allocating capital leadsnaturally to the question of the price that is paid for such efficiency. Inrecent years the financial industry has accounted for an unusually largeshare of all profits earned in the US economy. The share of the "finance"sector in total corporate profits rose from 10 percent on average from the1950s through the 1980s, to 22 percent in the 1990s, and an astonishing 34percent in the first half of this decade. (Data are from the US Departmentof Commerce. "Finance" here excludes both insurance and real estate; withthose additional firms included, the share of total profits in 2001-2005 was37 percent.) Those profits accruing to the financial sector are part of whatthe economy pays for the mechanism that allocates its investment capital (aswell as providing other services, like checking accounts and savingsdeposi!
ts). But

even a stripped-down version of the cost of running thefinancial system includes not just the profits that financial firms earn butalso the salaries, the office rents, the travel budgets, the advertisingfees, and all of the other expenses they pay. The finance industry's shareof US wages and salaries has likewise been rising, from 3 percent in theearly 1950s to 7 percent in the current decade. (Thomas Philippon and AriellReshef, "Skill Biased Financial Development: Education, Wages andOccupations in the US Financial Sector," National Bureau of EconomicResearch, Working Paper No. 13437, September 2007). An importantquestion-which no one seems interested in addressing-is what fraction of theeconomy's total returns to productively invested capital is absorbed upfront by the financial industry as the costs of allocating that capital.http://www.nybooks.com/articles/22702